Building their brands as daily fantasy sports operators, DraftKings (DKNG -5.85%) and Flutter Entertainment's (FLUT -3.47%) FanDuel gained a first mover's advantage over traditional sportsbook operators like casino companies, when the U.S. sports betting legalization wave kicked off starting in 2018.
However, for these first movers, a new competitive threat is emerging. A more favorable regulatory environment has empowered prediction markets like Kalshi to begin offering sports-related prediction contracts. Moreover, with Kalshi last week launching a product that could threaten a key profit center for the sportsbook industry, concerns have spiked further. As a result, shares in DraftKings, Flutter, and other sportsbook operators sold off in response.
Yet while market sentiment for these names is turning negative, one prominent growth investor is building up a contrarian wager on DraftKings. So, bullish or bearish, what's the smarter side of the trade? Let's find out.
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Wall Street thinks prediction markets are bad news for DraftKings
Previously, the Commodity Futures Trading Commission (CFTC) limited the types of prediction contracts Kalshi could offer on its platform. However, this started to change in 2024, when a court ruling enabled the platform to begin offering election-based prediction contracts .
Then, in 2025, when President Donald Trump reentered the White House, the CFTC shifted to a more pro industry approach to prediction markets. With this, Kalshi likely believed it had the regulatory green light to begin offering sports contracts. Since then, the market has become increasingly convinced that Kalshi, along with Polymarket, another prediction market that has cleared regulatory hurdles and is reentering the U.S. market, will give DraftKings and other traditional sportsbooks a run for their money.
These concerns have really spiked over the past few weeks, for two reasons. First, just a month into the NFL and NCAA football seasons, trading volumes for each league have come in at $1.15 billion and $965 million, respectively . While these handles may represent a drop in the bucket compared to overall betting volumes, these volumes are impressive right out of the gate.
Second, last week, Kalshi began offering parlay-style sports prediction contracts. As parlay wagers are a key profit center for sportsbooks, such a development could prove problematic for DraftKings and its competitors moving forward.
However, Cathie Wood isn't worried
Sentiment for DraftKings has taken a bearish shift, but Cathie Wood is taking advantage of the stock's newfound underdog status. On Oct. 1, 2025, three exchange-traded funds (ETFs) managed by Wood's Ark Invest investment management company acquired a total of 511,049 DraftKings shares.
Sure, with this investment totaling $19 million across three funds, with billions in assets under management (AUM), this isn't exactly a bet-the-farm-type of wager for Wood, known for her aggressively bullish calls on popular growth stocks like Tesla.
Also, beyond the key concerns right now about the impact of prediction markets on traditional sportsbook volume, there are other signs that this new competition could continue to disrupt the industry. For one, exchanges are able to bypass state-level gambling licenses and related taxation.
As a result, platforms like Kalshi can offer more favorable odds. These platforms are also able to operate in states where sports betting remains illegal. In other words, in markets like California and Texas, prediction markets could gain an early-mover advantage for themselves.
Time to buy the dip with DraftKings?
After pulling back in price, DraftKings now trades for just 16 times forward earnings . That makes the stock moderately cheaper than Flutter, which trades for around 20 times forward earnings .
Not only that, at today's valuation, the market may be overestimating how much prediction markets will impact future earnings growth. Sell-side forecasts still call for earnings to increase by over 50% in 2026.
Over the next few quarters, if prediction markets have less of an impact on DraftKings' growth than currently expected, shares could re-rate back to a higher valuation, perhaps one on par with key peer Flutter. On a longer time frame, a ban on sports-related prediction contracts, or the transformation of sportsbooks into exchange-style platforms, could neutralize the competitive threat.
In short, it may make sense to buy DraftKings on the dip, as much suggests the market has overreacted to recent prediction market-related news.
